Very interesting presentation yesterday.
Impressed at the degree of technology the company uses, and how the performance of their wells exceeds many of the competitors.
Lonestar Luncheon
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wilmawatts
- Posts: 685
- Joined: Fri Apr 01, 2011 10:12 am
Re: Lonestar Luncheon
Lonestar Production made a very interesting presentation yesterday to the Energy Prospectus Group in Dallas - lots of good technical details with regard to how the firm is making their Eagle Ford wells some of the top producing and returning wells. Longer laterals, more sand, thru bit logging, fewer better placed stages, lease costs are 1/5 that of the Permian. Partnership with a major service company with regard to technology utilization and development.
Firm mentioned how overvalued / costly the Permian was compared to the Eagle Ford from a return standpoint. Wall Street loves the Permian and values have gone through the roof in the Permian, lease cost roughly 30% of total cost in Permian versus 5% in Eagle Ford. Transport costs out of the Eagle Ford a fraction that of the Permian, closer to market on the Gulf Coast.
Discounted cash flow valuation in the Permian for many firms is 20X versus maybe 6 to 8 times in the Eagle Ford - for the same oil. HUGE discrepancy in value, driven by Wall Street. Lonestar will grow production 50% to 100% per year for some time, new Chairman founded Range Resources. Same oil being sold but cash flow discrepancy quite interesting to see in light of efficient market theories – but the Permian has multiple layers to develop is the spin.
All that said I like the STACK and remain invested in Permian plays. The Eagle Ford will have its day, just not any time soon from what I hear from investment analysts.
Firm mentioned how overvalued / costly the Permian was compared to the Eagle Ford from a return standpoint. Wall Street loves the Permian and values have gone through the roof in the Permian, lease cost roughly 30% of total cost in Permian versus 5% in Eagle Ford. Transport costs out of the Eagle Ford a fraction that of the Permian, closer to market on the Gulf Coast.
Discounted cash flow valuation in the Permian for many firms is 20X versus maybe 6 to 8 times in the Eagle Ford - for the same oil. HUGE discrepancy in value, driven by Wall Street. Lonestar will grow production 50% to 100% per year for some time, new Chairman founded Range Resources. Same oil being sold but cash flow discrepancy quite interesting to see in light of efficient market theories – but the Permian has multiple layers to develop is the spin.
All that said I like the STACK and remain invested in Permian plays. The Eagle Ford will have its day, just not any time soon from what I hear from investment analysts.
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wilmawatts
- Posts: 685
- Joined: Fri Apr 01, 2011 10:12 am
Re: Lonestar Luncheon
Dow Jones Institutional News
April 13, 2017 Thursday 2:41 AM GMT
16:30 ET - Dan Steffens at Energy Prospectus Group says a convergence of several factors may be setting the stage for oil prices to pierce key resistance at $55/bbl, unleashing a new, higher range for prices. At a luncheon today in Dallas, the president of the Houston-based networking group notes the arrival of the high-demand season, the start of a long-anticipated decline in US inventories, and Saudi Aramco's IPO preparations. "OPEC wants oil to be back in the $60s," Steffens says, noting the Saudis' IPO needs a high valuation. "You're talking about a country that's gonna do the biggest IPO in the history of IPOs... there are a couple trillion dollars at stake." (dan.molinski@wsj.com
April 13, 2017 Thursday 2:41 AM GMT
16:30 ET - Dan Steffens at Energy Prospectus Group says a convergence of several factors may be setting the stage for oil prices to pierce key resistance at $55/bbl, unleashing a new, higher range for prices. At a luncheon today in Dallas, the president of the Houston-based networking group notes the arrival of the high-demand season, the start of a long-anticipated decline in US inventories, and Saudi Aramco's IPO preparations. "OPEC wants oil to be back in the $60s," Steffens says, noting the Saudis' IPO needs a high valuation. "You're talking about a country that's gonna do the biggest IPO in the history of IPOs... there are a couple trillion dollars at stake." (dan.molinski@wsj.com
Re: Lonestar Luncheon
Frank Bracken (Lonestar's CEO) confirmed several assumption that I am using in my forecast/valuation model. First quarter production will be ~5,000 Boepd and increase to ~7,500 Boepd by year-end even if they stick to their one rig drilling program. If oil prices move over $55/bbl, I think Lonestar will add a second rig and accelerate production growth in the 2nd half of this year.
Lonestar has 75% of 2017 oil production hedged at $53.77/bbl, which locks in strong cash flows from operations.
Cash flow from operations per share (adjusted for today's share count)
2015A = $2.65
2016A = $1.43 < Over 90% was cash settlements on their hedges
2017E = $1.18
2018E = $2.57 < If LONE moves to a two rig program in 2018, production and cash flows will be much higher.
My valuation of LONE is $15/share, compared to First Call's price target of $11.67. John White at Roth Capital also values it at $15.00.
"LONE announced it has commenced an active drilling and completion program for 2017. In a theme seen in this sector, LONE concentrated on successful balance sheet strengthening in 2016 and as such, completed only 3.8 net wells in 1H 2016. LONE now picks up its activity, planning 12 net wells during 2017. With the 2017 program underway, LONE advised production has regained upward momentum, with estimated March 2017 production averaging 5,500 BOE per day, compared to the 4,560 BOE per day actual production in 4Q 2016. On the conference call, LONE mentioned that this well count could likely generate a 2017 exit rate of about 7,500 BOE per day." - John White 3/24/2017
My valuation is 8X (2017+2018 CFPS / 2). Several of our Permian companies are now trading at more than 20X operating cash flow per share.
As I said at the Dallas luncheon, Wall Street is "in love" with the Permian Basin and there are good reasons for the love affair. However, the Eagle Ford, STACK and DJ Basin can also generate strong returns at today's oil price.
LONE is one of the smaller companies in our Small-Cap Growth Portfolio, so it does have more risk just because of the size. HOWEVER, IT HAS A LOT OF UPSIDE FROM WHERE IT IS TRADING TODAY.
Lonestar has 75% of 2017 oil production hedged at $53.77/bbl, which locks in strong cash flows from operations.
Cash flow from operations per share (adjusted for today's share count)
2015A = $2.65
2016A = $1.43 < Over 90% was cash settlements on their hedges
2017E = $1.18
2018E = $2.57 < If LONE moves to a two rig program in 2018, production and cash flows will be much higher.
My valuation of LONE is $15/share, compared to First Call's price target of $11.67. John White at Roth Capital also values it at $15.00.
"LONE announced it has commenced an active drilling and completion program for 2017. In a theme seen in this sector, LONE concentrated on successful balance sheet strengthening in 2016 and as such, completed only 3.8 net wells in 1H 2016. LONE now picks up its activity, planning 12 net wells during 2017. With the 2017 program underway, LONE advised production has regained upward momentum, with estimated March 2017 production averaging 5,500 BOE per day, compared to the 4,560 BOE per day actual production in 4Q 2016. On the conference call, LONE mentioned that this well count could likely generate a 2017 exit rate of about 7,500 BOE per day." - John White 3/24/2017
My valuation is 8X (2017+2018 CFPS / 2). Several of our Permian companies are now trading at more than 20X operating cash flow per share.
As I said at the Dallas luncheon, Wall Street is "in love" with the Permian Basin and there are good reasons for the love affair. However, the Eagle Ford, STACK and DJ Basin can also generate strong returns at today's oil price.
LONE is one of the smaller companies in our Small-Cap Growth Portfolio, so it does have more risk just because of the size. HOWEVER, IT HAS A LOT OF UPSIDE FROM WHERE IT IS TRADING TODAY.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group